With the January 2018 deadline for your trading firm to achieve MiFID II compliance looming ever closer, time to prepare is running out. To meet the forthcoming changes to market structure and technology requirements, capital markets participants need to make a myriad of changes, which they will need to identify, test and implement properly. End of year system freezes will kick in at the end of 2017 so the window of opportunity to prepare and be ready is closing faster than many realise.
Every firm that needs to comply with MiFID II will already have a plan in place to do so, but in addition to tracking internal development, great attention needs also to be paid to external dependencies. Many trading venues and other firms affected by MiFID II will be undergoing their own programmes, with their own targets and timelines, and these may well have an effect on your critical path. Tracking these dates and any slippage is crucial to understanding what, if any, these delays will have on your own target dates.
Have you completed the assessments you need to make in order to determine which category your firm falls into? MiFID II requires all capital markets participants to be classified according to their activity within the market – categories include Algorithmic Trading or High Frequency Trading Firms (HFTs), Direct Electronic Access (DEA) Providers, or Systematic Internalisers (SIs). It is worth checking that you are on track for any external registrations that you need to make based on your categorisation. Do you need to vary your MiFID authorisation, or register a change of legal status? For SIs, would it be prudent to opt into the SI regime for set for 3rd January 2018, rather than wait for the mandatory deadline? Given your status, what are the technology ramifications for your company?
Data will play a big part in a firm’s successful implementation of MiFID II solutions, with additional trading venues, instruments and fields for trade and transaction reporting. Firms will also need to be able to source or access Legal Entity Identifiers (LEIs) for their counterparties, as well as making sure they have all the LEIs allocated that they need for their own legal entities that require them – and also have a policy in place to deal with counterparties that aren’t eligible for an LEI. Other data considerations include the availability of International Securities Identification Numbers (ISINs) and the construction of Alternative Instrument Identifiers (AIIs) where ISINs are not available, along with handling all the different forms of natural person identifiers or the Concatenated (CONCAT) standard.
For firms that qualify as algorithmic traders or HFTs, preparation for the testing and conformance regimes will no doubt be well underway. Likewise, those that need to timestamp to one of the different levels of accuracy.
Recording communications is a very broad topic and the extended storage requirements and associated retrieval complexities will no doubt present firms with a few challenges. The broader, expanded data storage requirements for transaction lifecycle and best execution monitoring & reporting will no doubt have many firms looking for outsourced solutions that have the appropriate level of performance and security.
With so many different moving parts, we’ve pulled together this handy FAQ to answer some of your questions.